THE Church of England Pensions Board is leading a group of 12 UK pension funds that are working together to consider how they can best support the climate transition in emerging economies.
The Pensions Board’s chief responsible-investment officer, Adam Matthews, said on Monday that, by joining forces, the pension funds could make a greater impact, and mitigate the risk to which they exposed their holdings.
The collaboration, announced on 12 May, involves the country’s largest pension scheme, the Universities’ Superannuation Scheme, which has £83 billion in assets under management.
Among them, the 12 organisations manage assets worth £400 billion, of which the C of E Pensions Board holds £3.7 billion. It currently serves about 41,000 members.
Mr Matthews said that a benefit of the 12 funds’ working together was that they were able to “mitigate some of the risks” of investing in this sector. “There’s no way we could do this unless we were confident that it met our risk and return requirements and the needs of our pension fund.”
He said that it was important that the Pensions Board had a “diversified set of investments”, and that putting money into emerging markets was an important part of that strategy.
Mr Matthews referred to South Africa as an example of climate transition in an emerging economy: there was an effort, confirmed at COP26, to move away from fossil-fuel assets to meet the goals set in the Paris Agreement in 2015, but this relied on public-private partnerships that required outside investment.
Pension funds were “particularly placed to really address these issues”, Mr Matthews said, owing to their long-term financial outlook. He said that this also increased the necessity of investing in the climate transition, to ensure good returns into the future: “It’s only going in one direction. The risks in climate change are something that you unquestionably have to account for.”
The Pensions Board has been involved in developing tools to help investors to assess the environmental credentials of potential investments.
In 2017, the Transition Pathway Initiative (TPI) was launched, in partnership with another pension fund, and the London School of Economics (News, 13 January 2017). It assesses companies on their disclosures, and tracks their progress in meeting goals on the way to becoming net-zero-carbon emitters by 2050.
The ASCOR project, which the Pensions Board helped to set up last year, seeks to develop a framework through which sovereign wealth can be assessed for its performance in reducing emissions. This, Mr Matthews said, could be used to help assess whether holding sovereign debt in a particular emerging economy was an effective way to support that country’s climate transition.
The first pilot of the ASCOR project will not be available until the end of this year, however, and a progress report on the collaboration between the 12 funds announced this month is not planned until shortly before COP27, in November.
Last May, the Pensions Board was criticised for maintaining its investment in Shell while other religious institutions were selling their oil and gas holdings (News, 17 May 2021). At the time, the Pensions Board said that it would disinvest if transition targets for 2023 were not met.
On Monday, Mr Matthews outlined a downside of disinvestment. “When you disinvest from a company, you don’t hand the shares back to the company, you sell them to someone else, and so you haven’t actually affected real-world emissions.”
In certain circumstances, he said, it was possible that working constructively with oil and gas producers could be more effective — although he acknowledged that “the Church as an investor in a company lends an element of social licence to that company; so we do hold that in our decision-making.”
In January, the C of E’s national investing bodies — which includes the Pensions Board — announced that they were disinvesting from 28 high-carbon companies, placing them on a restricted list that prevents future investment (News, 20 January 2022).
Despite being included on the restricted list, however, the Church Commissioners said that they would not yet disinvest from ExxonMobil, after new board members were appointed.
The Commissioners’ head of responsible investment, Bess Joffe, said on 20 January: “We are pleased that our engagement and activism with Exxon helped to replace 25 per cent of their board. . . We will hold Exxon shares for now to keep our seat at the table.”
In February, a letter to the Church Times signed by 136 members of the clergy, including the former Archbishop of Canterbury Lord Williams, highlighted ExxonMobil’s track record and called on the Church Commissioners to “disinvest immediately” (Letters, 25 February).
Reflecting on the balance between disinvestment and engagement, Mr Matthews said on Monday that “TPI means that you don’t need to disinvest from sectors any more: you can differentiate between companies, because you have an independent way of working out which companies are moving [in accordance with goals set out in the Paris Agreement] and which aren’t”
He concluded: “We’re confident that that the fund is working in a way that is responsive. But the other thing is, we’re continually learning — there isn’t like a rulebook for responsible investment; it’s something you need to continue to work out. We’re very open to feedback.”